Israeli attack on Gaza sparks rise in price of gold and oil

The price of gold and oil rose today as Israeli troops massed near the border with the Gaza Strip.

Gold was up nearly 2 per cent at $885.285 an ounce, while New York crude for February surged 5.6 per cent or $2.11 to $39.82. The similar Brent contract was up $1.54, or 4 per cent, to $39.08 a barrel.

On Saturday, Israel began a massive air offensive against Hamas territory, destroying hundreds of targets, killing about 300 people and wounding around 600 others.

Knock-on: Oil and gold prices have risen following Israel's air attacks on Gaza, which could be followed by a ground offensive

There are also fears that the Israelis will mount a ground offensive and other groups such as Lebanon-based Hezbollah could be dragged into the conflict.

Oil prices soared to a then-record $78.40 a barrel in July 2006 after Israel attacked Iranian-backed Hezbollah forces in Lebanon.

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'A big enough supply-side issue, real or potential, is definitely something that the market could latch onto to stage a bit of a recovery,' said Toby Hassall, a research analyst at Commodity Warrants Australia in Sydney.

Gold may also benefit if any escalation of the tension in the Middle East drives investors toward a safe haven, Hassall said.

Analysts were cautiously optimistic that the fighting in Gaza, like Israel’s 2006 bombing campaign in Lebanon, would cause only a brief spike in the oil price.

'The only danger regarding energy production is the conflict escalating to involve neighbouring countries, which does not look likely at this juncture,' said Jonathan Kornafel, Asia Director of Hudson Capital Energy, a US-based options house.

Hardline clerics in Iran have called on Muslims to defend Palestinians in Gaza but it sounded more like angry rhetoric than a threat.

Standard Chartered analyst Serene Gardiner pointed out that Iran 'isn’t in the best of economic shape due to low oil prices' and does not want to jeopardise its own oil revenues.